Brexit is not Brexit?

Much to the surprise of legal experts, the government and, presumably, to those who voted to leave the European Union, Brexit is now once again in doubt.

The High Court has declared that the Government cannot trigger Article 50 without a parliamentary vote. The Government will appeal, of course, but sterling is already higher on the news.

Let’s indulge in some crystal-ball gazing: What if Brexit didn’t happen? The prospect seems absurd given the time and effort expended on the process so far, but there is now a way in which it might not.

At first sight, it would appear to be good news for the economy. British businesses would no longer have the looming uncertainty of having to renegotiate trade deals across the board. It would arrest the decline in inward investment and businesses could carry on as before.

“The Bank of England cut rates and introduced quantitative easing on the basis that the economy would come under pressure once we left the European Union.”

But would it be good news for markets? Investors appear to have turned their attention to the US election and may not care particularly about the reversal of the vote. It would almost certainly see sterling rally, which would reverse the tailwind for many internationally-focused companies seen since the Referendum.

It would also leave us with an inappropriate monetary policy. The Bank of England cut rates and introduced quantitative easing on the basis that the economy would come under pressure once we left the European Union. Yet the economy has shown limited signs of weakness to date: In fact, today it was also announced that the activity in the UK’s services sector grew at its fastest pace since January. The purchasing managers’ index was 54.5 in October, beating analysts’ expectations of 52.4.

In this case, the Bank of England might have to act quickly to deal with a looming inflation threat. George Osborne’s predictions of higher inflation and higher interest rates may yet come to pass, but not quite as he envisaged it.

It is becoming clear that no-one has a clue: The Referendum has been poorly thought-through from the start. There has been no vision for what a post-Brexit Britain may look like, no thought as to how Brexit would be implemented and no consideration given to the fact that we live in a parliamentary democracy. In short, it is a mess.

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